March 31, 2011

Beshear's Bad Management Erodes Kentucky's Credit

Moody's Investors Service downgraded its general obligation issuer rating on Kentucky, saying the state continued to face budget gaps and expressing concern about an above-average debt burden and underfunded pensions.

The ratings agency lowered its rating on Kentucky by one notch to Aa2, which is two levels under Aaa. The ratings outlook remains negative, meaning future downgrades are possible.

Beshear also vetoed House Bill 107, which would allow a legislative contract oversight committee to review more executive branch contracts. Currently, the committee reviews only a portion of the contracts the state enters into each year. Because the legislature passed Senate Bill 7, which requires more information about contracts to be posted online, HB 107 is not needed, Beshear said.

Rep. Brent Yonts, D-Greenville and sponsor of HB 107, said he was disappointed Beshear vetoed the measure for the second year in a row. Beshear vetoed the bill last year over concerns that child support collection contracts by county attorneys would also be required to be reviewed by a legislative committee, possibly delaying the collection of child support. HB 107 exempted child support contracts.

Yonts said even though more information about government contracts are now available online, "it remains to be seen whether our committee will be able to review them."

As Representative Yonts points out, posting contracts online is completely irrelevant to the issue of legislative authority to review the contracts.

Next, he vetoes all portions of the budget requiring savings or oversight of his operations. He vetoed this:

46. Reporting Requirements: Beginning with the effective date of this Act, the Governor shall report monthly to the Legislative Research Commission the status of all budgetary savings and efficiencies that have been achieved for the 2010-2012 fiscal biennium. These measures shall apply but not be limited to expenditure reductions, non-merit employee reductions, contract reductions, and any other area that is used to achieve the savings mandated in this Act. This report shall be due by the 15th day of each month.

This:

48. Medicaid Managed Care Savings: The Legislative Research Commission shall employ an established accounting firm that has extensive expertise in the area of Medicaid benefits and the implementation of managed care. The Cabinet for Health and Family Services shall provide all documentation as requested. Notwithstanding any statute to the contrary, the firm and the Consensus Forecasting Group shall work together to provide their evaluated savings in fiscal year 2011-2012 from the implementation of managed care. By January 1, 2012, the firm and the Consensus Forecasting Group shall submit a joint final report to the Legislative Research Commission and to the Secretary of the Finance and Administration Cabinet that shall provide their evaluated savings for fiscal year 2011-2012. All costs associated with this section shall be deemed a necessary government expense and shall be paid from the General Fund Surplus Account (KRS 48.700) or the Budget Reserve Trust Fund Account (KRS 48.705).

But why won't he allow auditing of new Managed Care Services? What's Beshear trying to hide? If he can accomplish savings, why wouldn't he want to verify them? Is it because the State Auditor's report on passport found no verifiable savings in currently-offered managed care services?

Moffett Rounds Up Tea Party Endorsements, Support

"The Louisville Tea Party believes Kentuckians will not settle any longer for band-aid fixes such as those promoted by our current Governor Steve Beshear or Senate incumbent David Williams, ... Having vetted all of the candidates, the Louisville Tea Party has found resoundingly that Phil Moffett's 4 Corners Platform both addresses and resolves the four fundamental problems that career politicians have been unable or unwilling to address in Kentucky."

At the same time, the Tea Party from Bowling Green also issued an endorsement, saying "Moffett best represents the values of fiscal responsibility, limited government and free markets."

Additionally, Moffett is winning Tea Party straw polls, taking 51% to Williams' 47% in the NKY Tea Party poll, and 82% to Williams' 4% in Louisville.

What's it all mean? It demonstrates momentum for the Moffett Campaign. The NKY Tea Party groups are substantial and represent a significant chunk of Republican primary voters, and Louisville is substantial as well. With the low voter turnout expected in this primary, we can expect significant support for a Tea Party-supported candidate.

The Tea Party is by no means decisive, however. With the launch of radio ads by Williams and his initial name-ID advantage, Moffett will need more than Tea Party endorsements; he will need financial support.

Williams-Farmer 2011 Releases First Radio Ad

The Republican Gubernatorial primary heats up this week with positive news for Moffett-Harmon from the grassroots (see above post) and Williams-Farmer releasing its first ad for radio with accompanying slide show.

The ad is introductory, but is does make the claim that "David Williams has a proven record of cutting taxes and fighting out of control government spending."

March 28, 2011

Beshear Simply Wrong

By accepting the Senate Majority's stubborn and unconscionable rewriting of House Bill 1, so that the bill could come to my desk, the House enabled me to come forward Friday with my veto pen and restore common sense to the mission of rebalancing the state's 2011 Medicaid budget.

This mission started as a simple problem -- a shortfall that came to light several months ago.

In November, we proposed a solution to that problem that was simple, reasonable and founded on programs that have worked in other states.

We proposed filling the shortfall in the 2011 Medicaid budget with money from the 2012 Medicaid budget, then filling the newly created hole with efficiency measures and with new managed-care delivery principles that many states have used to reduce their Medicaid costs.

It was a short-term fix with long-term gain.

How simple does he think we are?

As we've written, it is simply misleading to suggest that "filling the shortfall in the 2011 Medicaid budget with money from the 2012 Medicaid budget, then filling the newly created hole with efficiency measures and with new managed-care delivery principles" is a "simple, reasonable" solution. Such a plan is most simply described as "pushing today's problems into the future."

Attempts to plug a $350 million hole in the Medicaid budget this year by borrowing it from the next year will likely lead to a budget hole next year, as a year-on-year $625 million increase is now budgeted to be a $125 million decrease.

If the borrowing plan passes, instead of Medicaid spending rising from $5.5 billion to $6.1 billion, it will be budgeted to decrease from $5.8 billion to $5.7 billion, a $426 million reduction and a $750 million swing in relative expectations.

Fortunately, despite his bluster, Governor Beshear did not get all that he requested. Instead of the $166 million that the House borrowed for Medicaid benefits in its plan, the Senate plan that passed only brought $97 million forward from FY 2012. With less taken from FY 2012, FY 2012 faces a $186 million reduction instead of the $426 million described above.

It's possible that, by accepting the Senate budget, the Governor has actually been provided achievable goals which he would not have if the General Assembly had accepted the Governor's own plan.

Quite simply, David Williams may have saved the Governor from his own arrogance.

March 25, 2011

Weird Letter from Jack Conway

Just got this email from Attorney General Jack Conway's reelection campaign:

Andy,

We have accomplished a lot over these past three years as Attorney General. But when I travel around the state, I often hear how hard these past few years have been for working families. I'm always looking for input and ideas on how to move our state forward in this tough economic time....

A lot of the work we do as Attorneys General makes for great headlines, but I always remember that every case I work on involves the real-life struggles of my fellow Kentuckians....

Can you take a few minutes to let me know what struggles you're facing right now?

Just five minutes of your time will help us continue to meet the needs of our citizens and to improve the lives of people in the Commonwealth. With your support we can continue to protect and strengthen Kentucky families.

Help us continue to move Kentucky forward. Click here to tell us stories about the challenges you face.

I hope to hear from you,

Jack

PS: Just $5 will help us continue to fight for Kentucky families. Click here to donate $5 right now!

Times are tough and I want you to tell me how you're struggling. Plus, give me $5.

Jim DeCesare's Statement on House Adjournment

Tonight, the Kentucky House of Representatives voted to agree with the Senate plan to resolve the Medicaid budget shortfall ending the Special Session. I agree with and voted for the Senate plan. It is a responsible plan that trusts, but also verifies. The plan, which credits the Governor for savings already achieved, fully funds Medicaid services this year while protecting the taxpayer and holding the Governor accountable through independent evaluation of his actions.

However, the reality is the Democratic Majority Leadership deliberately brought the session to a close in order to allow the Governor to veto all of the legislation's safeguards, leaving him with the all the money and no accountability. Besides being a cynical move, it leaves the people of this Commonwealth holding the bag again, because come next year even deeper cuts will have to be made.

Stumbo Agrees General Assembly In Session, Able to Receive Veto

Stumbo said he would urge the Senate to call its members back as soon as possible and officially end the special session in a move called sine die to make sure lawmakers will no longer get paid for being in session.

All 138 members of the General Assembly will continue to be paid until the Senate votes to end the session, Stumbo said.

Senate President David Williams disputes that legislators will receive payment during this period, noting that HB 1 contains language that "says lawmakers would not be paid during the veto period." However, Stumbo's expectation that "all 138" would be paid until the Senate adjourns is a recognition that the General Assembly has not adjourned, which casts doubt on the proper mechanisms to execute the Governor's veto.

March 24, 2011

Stumbo, Afraid of Budget Votes, Creates Constitutional Crisis

We have created a Constitutional crisis in Kentucky. The Kentucky House of Representatives has adjourned until January 3, unless called into extraordinary session. The Kentucky Senate has adjourned until April 3.

Here's the back story.

Governor Steve Beshear hastily and arrogantly called the General Assembly into Extraordinary Session without agreement between the Senate and the House about how to resolve a $166 million shortfall in the Medicaid budget. That story is covered in the post:

Because of the disagreement, nothing happened in the first five days of the session March 14-18.

On Monday, March 21, the House finally considered HB 1 in Committee and on the House Floor. The House's version differed slightly from the Governor's original request. It borrowed the $166 million from fiscal year 2012 as the governor originally proposed, but it requested him to certify that savings were achieved, and forbid him from cutting education if he failed. This proposal did nothing to reduce the unaffordable baseline, using next year's money to plug this year's hole. Representatives Stan Lee, Jim DeCesare, Joe Fischer and Tom Kerr were the only members of the House to oppose the Governor's proposal.

$101 million in cuts across much of state government. The plans calls for 0.355 percent cuts in the remaining part of the current fiscal year and 1.74 percent in the second year, which begins July 1.

If Beshear can generate $114 million in Medicaid savings, cuts to education would not take place. If those savings could not be documented, then the main funding formula for schools will be cut 0.812 percent and higher education would be cut 1.74 percent. Those cuts would go into effect in January.

The General Assembly would have to vote to rescind the cuts in January if the savings materialized.

The House, unwilling to negotiate, decided to pass the Senate's language and adjourn, allowing the Governor to veto items without the possibility of being overridden. The Senate, however, voted to adjourn until April 6, at which time a veto override can be considered.

Here's why it is a Constitutional Crisis

The General Assembly can not adjourn without the agreement of both Houses. Section 41 of Kentucky's Constitution reads:

Neither House, during the session of the General Assembly, shall, without the consent of the other, adjourn for more than three days, nor to any other place than that in which it may be sitting.

This passage may pertain specifically to regular sessions, but it does convey the general idea that both houses must agree on adjournment to adjourn.

The section pertaining to special sessions is Section 80 (emphasis added):

Section 80
Governor may call extraordinary session of General Assembly, adjourn General Assembly.

He may, on extraordinary occasions, convene the General Assembly at the seat of government, or at a different place, if that should have become dangerous from an enemy or from contagious diseases. In case of disagreement between the two Houses with respect to the time of adjournment, he may adjourn them to such time as he shall think proper, not exceeding four months. When he shall convene the General Assembly it shall be by proclamation, stating the subjects to be considered, and no other shall be considered.

In Section 80, the Governor clearly has the power to adjourn the legislature for a period of up to four months in cases of disagreement between the Houses.

Right now, the House of Representatives is adjourned, but the Senate is not. Both sections suggest that the General Assembly is not adjourned because the Houses have not agreed on adjournment. The Governor has the authority to adjourn them temporarily since they do not agree.

Here's why the status of the General Assembly's adjournment is relevant (emphasis added):

Every bill which shall have passed the two Houses shall be presented to the Governor. If he approve, he shall sign it; but if not, he shall return it, with his objections, to the House in which it originated, which shall enter the objections in full upon its journal, and proceed to reconsider it. If, after such reconsideration, a majority of all the members elected to that House shall agree to pass the bill, it shall be sent, with the objections, to the other House, by which it shall likewise be considered, and if approved by a majority of all the members elected to that House, it shall be a law; but in such case the votes of both Houses shall be determined by yeas and nays, and the names of the members voting for and against the bill shall be entered upon the journal of each House respectively. If any bill shall not be returned by the Governor within ten days (Sundays excepted) after it shall have been presented to him, it shall be a law in like manner as if he had signed it, unless the General Assembly, by their adjournment, prevent its return, in which case it shall be a law, unless disapproved by him within ten days after the adjournment, in which case his veto message shall be spread upon the register kept by the Secretary of State. The Governor shall have the power to disapprove any part or parts of appropriation bills embracing distinct items, and the part or parts disapproved shall not become a law unless reconsidered and passed, as in case of a bill.

If the General Assembly is in session, a bill becomes law unless the Governor returns the bill "with his objections, to the House in which it originated." If the bill is not returned by the Governor, it shall be law, "unless unless the General Assembly, by their adjournment, prevent its return."

Now, the house of origin for HB1 is the House of Representatives, which has adjourned, thereby preventing the Governor from being able to return his objections to the House. On the other hand, the Senate has not adjourned, preventing the General Assembly from having adjourned, meaning the Governor must submit his objections within ten days.

The premature adjournment of the House has created a paradox which can be most neatly resolved three ways:

1) The Governor uses his authority to adjourn and reconvene the General Assembly, risking the appearance of gaming the system to avoid having his veto overridden; or

2) The Senate caves and adjourns Sine Die on April 6th; or

3) Stumbo returns the House into session and votes on the veto override.

An undisputed part of HB 1 prohibits pay for legislators during the veto period so waiting does not incur additional expense.

Any other resolution is likely to be a lawsuit alleging that the Governor's veto is illegal. I'm not ready to analyze the legal merit of such a lawsuit or what the political ramifications would be for Beshear and Williams.

March 23, 2011

As the legislature debates plugging a $166 million shortfall in the Medicaid budget, it seems many legislators are just hoping that revenues improve and that the hole they're digging in next year's budget would just go away.

Yesterday's housing news is one more piece of evidence that a recovering economy isn't quickly coming to the rescue of legislators trying to avoid setting budgetary priorities.

Purchases of new U.S. homes unexpectedly declined in February to the slowest pace on record and prices dropped to the lowest level since December 2003, adding to evidence the industry is floundering.

Sales decreased 16.9 percent to a 250,000 annual pace, figures from the Commerce Department showed today in Washington. Economists surveyed by Bloomberg News projected a gain to a 290,000 rate, according to the median estimate. The median price fell 8.9 percent from the same month in 2010.

Builders are struggling to compete with existing homes as foreclosures add to the overhang of unsold properties and drive down values. The figures underscore the Federal Reserve's view that the housing market "continues to be depressed" even as the rest of the economy improves.

March 22, 2011

US Tax Code Most Progressive of Industrialized Nations

The first column shows that the top 10 percent of households in the U.S. pays 45.1 percent of all income taxes (both personal income and payroll taxes combined) in the country. Italy is the only other country in which the top 10 percent of households pays more than 40 percent of the income tax burden (42.2%). Meanwhile, the average tax burden for the top decile of households in OECD countries is 31.6 percent.

By contrast, column #2 shows that the richest decile in America earned 33.5 percent of the market income in the country in 2005 - the year in which this snapshot was taken, but little has changed since then. But, a few other countries do have a greater or similar concentration of income as does the U.S. For example, the OECD table shows that the wealthiest decile of households in Italy and Poland earn a greater share of their country's market income than do our "rich" - 35.8 percent and 33.9 percent respectively - while the share of income earned by the top decile of households in the U.K. is about on par with those in the U.S. at 32.3 percent.

The table then adjusts for the underlying allocation of income by showing the ratio of income taxes paid to the share of income earned by the top decile in each country. The ratio for U.S. households is 1.35, far greater than the ratio of taxes to income in any other country. Even in the three countries with a comparable distribution of income, the ratio of taxes to income was less, 1.18 in Italy, 0.84 in Poland, and 1.20 in the U.K.

March 18, 2011

Beshear's Record of Failure

Even if spending next year's potential savings this year was ever a responsible idea, there is plenty of reason to doubt that this Governor would achieve the savings he claims. After the passage of last year's budget, Governor Beshear line-item vetoed millions of dollars in required savings. Where the budget required finding $125 million worth of savings in Medicaid, Beshear only achieved $89 million. Additionally, he refinanced the state's debt, generating an additional $67 million in spending by pushing existing debt into the future.

Governor Steve Beshear has a pattern of budgeting failures. In 2009 we called him out for using gimmicks to create and plug a "$55.7 million" shortfall. He campaigns on having balanced "Kentucky's budget eight times in three years, slashing over a billion dollars in spending." It is this gimmick of borrowing from next year to pay this year's bills that results in the Governor's repeated failures, having to correct the budget three times per year. Since he vetoed the prescribed savings in 2010, he faces shortfall #9 today. When pays for this year's shortfall with next year's money, he'll create shortfall #10. It is bewildering that he would tout this incompetence as an accomplishment.

March 17, 2011

House Dems Think Health Care Providers Are Idiots

That several State House Democrats are telling health care providers that Kentucky's in this Medicaid pinch because of the Commonwealth's federal delegation to Washington. Particularly, they blame Mitch McConnell and the House members for failing to fund Medicaid properly in the 2009-2010 session. Guess they're trying to kill two birds with one stone by laying responsibility on Washington.

Of course, everyone who isn't a House Dem knows during the years that the 2009-2010 sessions took place it was Democrats who held a super-majority in th US House, a almost-super majority in the US Senate and the US Presidency.

First the Governor tries to scare health care providers, now the state House tries to insult their intelligence.

March 16, 2011

Session in a Nutshell

I found if funny that Governor Beshear recently referred to the legislature as "fat boys." I guess he was frustrated with them for not agreeing to his plan for the budget. Of course, he hasn't provided much leadership himself, because his "plan" only borrows against an uncertain future.

There is one, and only one, constitutionally mandated task for our state legislature. Balance the budget. But legislative sessions have become like Groundhog Day, failing to do so in the time allotted. For the last few years, the leaks have been plugged by patchwork, ending in borrowing more money to balance an already bloated budget. In the real world, this track record would be cause for dismissal. But in the world of elected officials - it's just another day in the life of a wasted tax dollar.

I applaud the Republican led Senate for proposing cuts instead of borrowing, and calling the regular session to a close a few days early. Seeing the writing on the wall that the Democrats were only interested in playing in their pen with their baby rattlers the Republicans are actually saving the state money by forcing the legislature into a special session. That's because there were 12 days left of the regular session. At over $40K per day you can do the math. If negotiations were not going to take place, then it was wasted money to continue on. In a special session, lawmakers will be under stricter time constraints forcing them to get their work done in 5 days. The savings works out to roughly a half million dollars.

But that's tidily-winks compared to the bigger problem we face. Our leaders are gambling with our future by refusing to make tough decisions now and borrowing money against tomorrow.

Session's Over, Governor Throws Tantrum

Yesterday, the State Senate gaveled out on the 2011 short session of the General Assembly. Before they reached that point, the Governor had already declared that he would call them back in on Monday if he didn't get permission to steal $166 million from the 2012 budget to pay for his overspending this year.

How to sort out all this maneuvering for the taxpayer? Certainly, Special Sessions are expensive, and indicate unfinished work during regular business hours.

But there is a Medicaid shortfall, and it has not been addressed. Governor Beshear claims that the ramifications of this shortfall are 30% reductions in payments to doctors and hospitals starting April 1.

The leadership of the two houses have taken different approaches to answering the shortfall. The House wants to use one-time funding, spend the budget down to zero in FY 2011, and borrow about $98 million from 2012. This is the 'kick the can down the road' approach which is the most common policy choice in Frankfort. The Senate, backed by some conservatives in the House, reverses the proposal, cutting spending to balance the budget and suggesting the cuts can be restored if savings are realized in the future.

Of these two proposals, balancing the budget with spending cuts is clearly the more fiscally-responsible approach, even when the cuts mean cutting education. As one KCFGer notes:

There cannot be any sacred cows if we are going to get our budget problems under control. Kentucky schools operate with one of the highest support staff per student ratios in the nation. We cannot continue to allow school districts to employ unnecessary, non-teaching staff so local officials can maintain political power when we have obligations to Medicaid and other federally mandated programs.

While it seems obvious to take an approach of "pay for only what you can afford", the Governor would have none of it, House leadership backed him up, and the regular session ended without this being resolved.

The silver lining for the taxpayers - ending the regular session early saved 14 days of operating costs and per diems for a later time.

Unfortunately, the Governor's temper has driven him to demand that his original proposal be passed and called the General Assembly into a special session on Monday.

There are (at least) three reasons that this is a horrible idea.

First, there is clearly no agreement on how to resolve the Medicaid budget. In fact, the Senate voted the Governor's plan down 13-23 yesterday. Calling the legislature back before a plan has been agreed upon is a waste of money under any circumstances.

Second, the main sticking point is whether the wishful savings in 2012 can be realized. This will not change over the weekend. If a special session is necessary, it should not occur until the contracts are available for inspection.

Third, a special session will be necessary this year for the purposes of redistricting. If the special session took place in late April, we believe the necessary census data would be available to address this issue as well.

Governor Beshear's hasty call and ridiculous threats are simply an invitation to disaster and a waste of the taxpayer's money. It is compounded by the fact that the Governor vetoed several provisions of the last budget that mandated savings which could have been used to plug this shortfall.

It's a constant case of deja vu with this Governor. Whether it's his failure to advance his casino agenda, his constant budget shortfalls, or his continued use of President Obama's laughable "Jobs Saved or Created" statistic, he constantly undermines our ability to take him seriously. And when he doesn't get his way, instead of demonstrating leadership, he throws a tantrum and holds a press conference to dig in his heels. We'll be glad when he's gone.

March 8, 2011

Conference Committee on Medicaid Spending Breaks for Lunch

In the back and forth in this morning's conference committee one thing is clear.

House Democrats are willing to gamble on magical Medicaid savings next year while Senate Republicans would rather make cuts this year and restore spending if magical savings materialize.

Rep. Bob Damron was so bold to say that he'd rather contain any budget cuts within Medicaid, meaning that 1) he wanted to trust savings to materialize next year and 2) if they didn't materialize, cut Medicaid only, meaning 3) if his confidence on future savings is misplaced, he wants Medicaid to absorb cuts that would be at least triple today's $166 million shortfall.

On other subjects, both Williams and Stumbo agreed that the Governor should be limited from unlimited debt refinancing that stretched Kentucky's debt obligations into the future, but Stumbo was not willing to put a temporary cap on the Governor at levels allowed in the ES10 HB 1 budget because the Governor had already exceeded that cap and spent the resulting cash. Stumbo did agree to push legislation next year clarifying that the Governor could not refinance debt without legislative approval.

Williams and Sen. Stivers did find that the state payroll had increased by 1180 employees between December 2008 and today (while the Governor was furloughing state workers), and that personal service contracts had expanded by millions while the last budget required the Governor to reduce them.

At one point in the session, Williams proposed creating the reductions for FY 2011, adjourning sine die, and returning to a special session in June when they would have the negotiated contracts to provide greater certainty about the savings that would be needed in FY 2012.

At the end of the negotiation session, Stumbo suggested that the Governor should be given the opportunity to manage the Medicaid program to generate savings. He proposed taking about $67 million in extra funding the House and Senate had identified and placing it in the "rainy day fund" to be use to offset any unrealized savings.

Ultimately it boils down to the assumption the legislators want to make. Do they want to steal from next year's budget, hoping that savings and revenues materialize and making potentially more drastic cuts if they don't, or do they want to go ahead and make responsible cuts and have the potential to resend those cuts if the hoped-for savings ultimately allow it.

Back at it in Frankfort - March 8, 2011

The General Assembly has rearranged their legislative calendar to meet today. As the 29th day of the 30 day session, there is only one day left. Legislators continue to meet over HB 305 which works to address an expected $166 million shortfall in Medicaid this year.

Agreement so far centers on an interest in generating some savings in Medicaid for the 2012 fiscal year, that those savings will not amount to enough to solve the deficit this year, and that spending cuts are needed immediately and next year.

Disagreement at the moment revolves around whether or not education can be spared from cuts entirely. Supporters of education cuts argue that, after education has been held level as $1 billion has been cut from the budget already, it can no longer be left out of the discussion of budget cuts. Opponents of the cuts argue that they think they can find a way to avoid them.

Interestingly, David Williams has kept negotiations mostly in public session, which is a departure from the mostly private budget negotiations we have come to expect.

March 7, 2011

Cooler Heads in Frankfort after Weekend Break

Seems that the Chairman of the House A&R Subcommittee on Health agrees with the Kentucky Club for Growth and Senator David Williams that Governor Beshear's savings claims are pie-in-the-sky.

The Democratic-led House approved Gov. Steve Beshear's proposal, which would move $166 million from next fiscal year to the current fiscal year in the Medicaid budget. Beshear has said he can generate enough savings in the $6.5 billion program for the poor and disabled to make up the difference in the second year.

But Senate Republicans said it was not possible for Beshear to generate those savings because the managed care contracts that Beshear is relying on to generate those savings won't be signed until summer.

Rep. Jimmie Lee, chairman of a House budget subcommittee that oversees the Medicaid budget, agreed with Senate President David Williams on Monday that it may not be possible to generate the full $166 million in savings.

Pressed with such facts, even Stumbo admits it.

Stumbo suggested later that the two sides might be able to reach an agreement that includes relying on a combination of savings and spending cuts.

At Least We're Not New York

Another evisceration of public employee unions, this one courtesy of the New York Times:

At a time when public school students are being forced into ever more crowded classrooms, and poor families will lose state medical benefits, New York State is paying 10 times more for state employees' pensions than it did just a decade ago.

That huge increase is largely because of Albany's outsized generosity to the state's powerful employees' unions in the early years of the last decade, made worse when the recession pushed down pension fund earnings, forcing the state to make up the difference.

Although taxpayers are on the hook for the recession's costs, most state employees pay only 3 percent of their salaries to their pensions, half the level of most state employees elsewhere. Their health insurance payments are about half those in the private sector.

In all, the salaries and benefits of state employees add up to $18.5 billion, or a fifth of New York's operating budget. Unless those costs are reined in, New York will find itself unable to provide even essential services.

Gov. Steve Beshear says the state could come up nearly $240 million short early next year if a federal spending bill defeated by a Senate Republican filibuster doesn't pass.

...

Beshear said that having to re-balance the budget to offset the loss of nearly $240 million would be a "horrendous" task. He said virtually every state program would face significant reductions.

Because the federal government had no money to give, the funding never materialized. We knew it would happen, the Congress that was about to be retired by the voters in last year's elections knew it, and Governor Beshear and the General Assembly knew it too.

Now, the program faces a $166 million shortfall this year. And here's the boring math:

The total of state funds and matching federal funds budgeted for 2011 and 2012 in the original budget were $5.5 billion and $6.1 billion.

In 2012, $1.4 billion in state funds were budgeted to receive $4.3 billion in matching funds. Because of their faulty assumption about receiving federal funds, only $777 million were budgeted to receive $4.3 billion in federal matching funds in 2011. There's the shortfall. Frankly, we're surprised that $166 million is enough, but finding that sum for Medicaid this year will apparently make Medicaid whole, creating $5.8 billion in total Medicaid spending this fiscal year.

Steve Beshear's original plan, and HB 305 as originally introduced, was simply to steal the $166 million needed in 2011 from 2012's budget.

Attempts to plug a $350 million hole in the Medicaid budget this year by borrowing it from the next year will likely lead to a budget hole next year, as a year-on-year $625 million increase is now budgeted to be a $125 million decrease.

If the borrowing plan passes, instead of Medicaid spending rising from $5.5 billion to $6.1 billion, it will be budgeted to decrease from $5.8 billion to $5.7 billion, a $426 million reduction and a $750 million swing in relative expectations.

"Sen. Williams wants our schoolchildren, our college students, our seniors, our veterans, our state police, our prosecutors, our social workers and many others to pay for a shortfall in the Medicaid budget," said Gov. Beshear. "I won't stand for one penny to be hijacked from our school systems, nor one cent stolen from public safety to protect our families. My proposal fixes Medicaid within the Medicaid budget without these painful and unnecessary cuts."

What's surprising is that House Republican Leader Jeff Hoover decided to use the opportunity too:

House Minority Leader Jeff Hoover, in a written statement, said that cutting education to fix problems in Medicaid was a bad idea.

"I and the other 41 members of the Kentucky House Republican Caucus do not believe it is good policy to shift funding from education at a time when many of our school districts are counting pennies to balance their own budgets," Hoover said. "It's a step in the wrong direction."

The original House proposal is clearly ridiculous. And across the country, Republican Leaders have stepped up to the challenges of much larger budget dilemmas,
challenging entrenched interests like teacher's unions. But instead of quietly negotiating to improve the proposal, Hoover aligns himself and his caucus with the choice to borrow from next year and see if we make it, the all-too typical CYA-move that kicks problems down the road instead of addressing them.

We're unimpressed.

We wonder if he really does speak for all 41 members of his caucus, like Phil Moffett running mate Mike Harmon...

Today in Frankfort - March 4, 2011

Legislative Day 27

Most of the action starts in the Senate today.

On House Orders

SB 75 - Another Health Care Mandate
While the original language would result in a 1% premium hike, the HCS should not have great effect on costs. Both HFA1 and HFA2 however would result in higher health care costs.

HB 305 - Budget Reduction
The original language kicked the can down the road, pushing a difficult budget situation into the next fiscal year. Current language is much improved, imposing real cuts to balance a budget shortfall. Freshman legislators can blame the rest of their colleagues for creating the shortfall in the first place, relying on a second federal bailout that no one other than a legislator in Frankfort could have actually expected to happen.

On Senate Orders

HB 333 - Fireworks Tax
This legislation imposes huge new fees and taxes on the fireworks retailers who set up shop every year around Independence Day and New Years. In fact, such shops are practically banned by requiring new building codes, fees to the fire marshal and paperwork to the Department of Revenue. The statute sets out to criminalize most Kentuckians by allowing aerial fireworks but banning them within 200 feet of any vehicle structure or person. This is an act that protects big businesses at the expense of the small entrepreneur. POTENTIAL KEY VOTE

Resist UAW plan to organize foreign automakers

As we observe the unionized government employee protests in Wisconsin, despite that state's massive $3.1 billion budget shortfall, we should take note that organized labor is often out of touch when it comes to creating solutions and opportunity in the current global economy.

Public sector unions, like the ones on the street in Madison, and private sector unions like the United Autoworkers have a long track record of shortsighted and self-interested actions.

One need only look at the demise of the Detroit automotive industry as an example. Considering what has happened in the Motor City over the last several years, we in the commonwealth should pay attention to UAW President Bob King's recent announcement that his organization will push to unionize "transplant" foreign automakers throughout the American South and Midwest.

On the one hand, it's understandable why the UAW is trying to expand beyond the Detroit Three -- it desperately needs a win. It is hemorrhaging members, and more importantly, union dues to keep it alive.

Since peaking at 1.5 million in 1979, the UAW has lost more than three-quarters of its membership. From 2001 to 2009 alone, the union's membership declined by nearly one-half, from just over 700,000 to less than 360,000.

On the other hand, there's very little reason why transplant employees would benefit from joining the UAW.

Most transplant employees have already rejected the unwanted burdens of unionization. The UAW has never succeeded in organizing a major U.S. factory owned by an Asia-based automaker, including repeated failed attempts to unionize Nissan in Smyrna, Tenn., and Honda in Marysville, Ohio. Unable to persuade employees directly, UAW's King has been attacking their employers, professing to "pound" on transplants if they don't agree to his terms.

As the Big Three in Detroit have faltered, it's fair to say the UAW has pounded enough. It's hard to understand how the UAW seeks to win over employee support by tarnishing their employer.

What motivates the UAW to target these plants? Survival, apparently.

In a recent speech to union members and retirees at a conference in Washington, D.C., King admitted that if he doesn't organize transplant factories, the union's survival is at stake.

In his own words, "If we don't organize these transnationals, I don't think there's a long-term future for the UAW -- I really don't."

Failed attempts at organizing. Repeated attacks on employers. And now a desperate plea to stay afloat. This is what the UAW offers.

Instead of allowing the Detroit model to be instituted here in Kentucky, it's time we protect Kentucky jobs and join 22 states by making Kentucky a right-to-work state, protecting workers from being forced to join a union or support a union.

After all, we're talking about the livelihood of our neighbors, our communities and our own prosperity.

Andy Hightower is executive director of the Kentucky Club for Growth, dedicated to lower taxes, smaller government and strong free enterprise.

March 3, 2011

Elaine Walker's More Effective Than You Ever Knew Was Possible

FRANKFORT, KY - Secretary of State Elaine Walker applauds the unanimous House passage of Senate Bill 8, which will lead to the creation of a One Stop Business Portal for Kentucky. A One Stop electronic portal will give businesses a direct link to all state agencies within the Commonwealth in one, simple to use online location. Walker made this legislation a cornerstone of her legislative agenda as Secretary of State in her efforts improve the state's business climate and promote economic development.

We like SB 8 too. It will help businesses big and small in Kentucky by putting the way-too-many required filings and paperwork in one place online.

We'd like to congratulate Walker on its passage except for one thing:

She had nothing to do with it.

She had so little to do with this David Williams initiative, that it had already passed through half the legislative process before Trey Grayson even announced that he would resign as Secretary of State.

March 2, 2011

Today in Frankfort - March 2, 2011

HB 433 - Paperwork for Tire Sales Working GroupSenate Committee on State and Local Government
Since we last discussed this bill, the bill has been greatly improved. Not only will it require coordinated thought behind the goal of waste tire reduction in Kentucky, it requires the Cabinet to dedicating at least 75% of waste tire funds to waste tire reduction programs.

SB 75 - Another Health Insurance MandateHouse Committee on Banking and InsuranceOur lengthy discussion on health insurance mandates yesterday neglected to include this bill, although we did mention last year's effort to mandate chiropractor coverage. This year's effort is estimated to increase insurance premiums and health care costs up to 1%, so the total effect of mandates - if they all passed - would be to raise premiums 2.6%, above and beyond whatever cost increases are caused by the general trend of increasing health care costs and the effects of Obamacare. A 2.6% premium hike is just the General Assembly's small part of making your health care more expensive. LIKELY KEY VOTE.

March 1, 2011

Today in Frankfort - March 1, 2011

Legislative Day 24

Bills in Committee

HB 318 - $1 Billion Tax IncreaseHouse Committee on Appropriations and Revenue
This legislation would increase taxes by $1 billion for the biennium, or over 5% of current revenues, expand the sales tax to some services used by every Kentucky family including car washes, dry-cleaning, carpet cleaning and exterminators, target family farms with an estate tax increase, and hike cigarette and income taxes. WILL SCORE COSPONSORSHIP NEGATIVELY

We have already discussed:

SB 41 - Dismantling the Political Party System in Kentucky House Committee on Elections

We used the analysis of the autism mandate to illustrate exactly how health care mandates increase the costs of health insurance.

So Kentucky insurers are now mandated to include coverage of up to $50,000 per year for a $70,000 service for almost 1% of Kentucky's children. Thanks to analysis included with the bill, we have an estimate of how much this costs: $8.3-10.4 million annually.

Broken down on a per insurance-subscriber basis, it is estimated to cost $24-$30 annually for a member of a large group plan, and about $10 annually for a small group or individual subscribers.

This $30 annual cost increase accounts for almost 1% of the average premium for employer-based coverage in Kentucky. So next year, when your health premiums go up 5%, you can attribute one-fifth of that directly to this bill.

Mandates increase the costs of health insurance by forcing policyholders to pay for the newly mandated service, regardless of the cost-benefit evaluation an insurance company might make or the cost-benefit evaluation the policy-holding individual might make for themselves in the health care marketplace. One can argue whether the insurance company is a good actor in making this evaluation, but when coverage is mandated, the price of that service must play into the overall cost of the insurance policy.

Sometimes, instead of mandating a particular coverage, the government will mandate prices. Two bills this year take this approach - HB 230 and SB 112

The cost of a policy is determined by an evaluation of the cost of providing covered services to the policy-holding group. When the price for a particular service is mandated, it affects the policy's cost in two ways. First, the prices of other services covered by the policy will rise in order to cover the cost of the mandated service. Second, the mandate creates different financial incentives to consume services and affects the likelihood of the policy group to consume particular health care services. To the extent that a mandated cheaper price will encourage greater consumption of services (and greater health care spending by the policy group) it will increase the costs to cover the group and increase everyone's premiums.

HB 230 mandates copayment cap of 50% of the reimbursable cost of chiropractor services. The included actuarial analysis suggests that this mandate will increase insurance premiums in Kentucky by 0.5% to 1.5%, and increase overall health care costs by up to $21 million.

SB 112 originally mandated a 20% copayment cap for physical and occupational therapy, which the actuarial analysis suggests is a maximum 0.16% increase in premiums and costs.

Current language mandates that physical therapy office visits should be considered the same as a visit to a physicians or osteopath. While this doesn't mandate a particular price, it does mandate that the copayment will be equal to visiting a physician. If this is a lower level, it will make increased consumption of these services more likely, and must be accounted for by higher copayments for physician services and/or higher premiums.

How bad are these mandates?

We're not going to evaluate the wisdom of the mandates individually, and SB 112 probably won't make our scorecard. Indeed, it's possible that some mandates may incidentally encourage better, more healthful behavior. What is certain is that when the government mandates something, it is one more distortion of consumer choice, and it is a step down the path of greater inefficiency in our system.

We will hold endorsed candidates accountable for these principles by monitoring each candidate on a vote-by-vote basis. As a Club member, you will receive candidate monitoring updates and scorecards on a regular basis. Join us today.